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Does livestock insurance coverage affect participation
in livestock markets?
Market participation allows for more efficient p...
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Summary Statistics: Key Dependent and Independent Variables
Full IBLI Non-IBLI
Sample Policy Policy
Holders Holders
Variab...
Summary Statistics: Controls
Full IBLI Non-IBLI
Sample Policy Policy
Holders Holders
Variable Mean Mean Mean p-value of
(S...
Livestock Market Activity and Livestock Insurance
(1) (2) (3) (4) (5)
Dependent Variable Any Market Activity Net Seller Ne...
Livestock Insurance, and Livestock Market Activity: IV
Estimation
(1) (2) (3) (4)
Dependent First Stage Any Market Activit...
Livestock Insurance, Household Status and Livestock
Market Activity: IV Estimation
(1) (2) (3) (4) (5) (6)
Fully Settled P...
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Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 1 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 2 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 3 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 4 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 5 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 6 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 7 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 8 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 9 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 10 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 11 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 12 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 13 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 14 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 15 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 16 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 17 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 18 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 19 Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya Slide 20
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Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya

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Presented by Eddy Chebelyon at the IBLI academic workshop, Nairobi, 10 to 11 June 2015

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Pastoralist market engagement in the presence of IBLI: Evidence from Nothern Kenya

  1. 1. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Kenya Eddy Chebelyon & Elizabeth Lyons International Livestock Research Institute & UC, San Diego June 10, 2015
  2. 2. Does livestock insurance coverage affect participation in livestock markets? Market participation allows for more efficient production (Smith and Nicholson, 1887) Despite improved access to markets, many pastoralist households still not engaging in markets (Barrett, 2008) Purchases and sales may increase household exposure to risk; insurance may increase household willingness to engage in these activities (e.g. Karlan et al., 2014) ........ ..... ................. ................. ................. .... .... . .... ........ .
  3. 3. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Introduction Institutional Background Extensive pastoral production takes place on around 25 percent of world’s land mass Pastoral production provides multiple outputs: Milk, meat, blood, hides and skins, manure Pastoralism is risky: covariant and idiosyncratic, economic and socials risks To manage risk: Migration, self insurance/informal risk sharing, income diversification, herd accumulation and IBLI. 3 / 21
  4. 4. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Introduction Theoretical Motivation IBLI could increase market participation by generating incentives to increase or decrease herd size 1. IBLI may reduce household herd sizes, decrease market purchases (Ehrlich and Becker, 1972) Livestock is a form of self insurance (Dercon, 1998) IBLI may substitute for larger herd sizes as a risk mitigation strategy 2. IBLI may increase household herd sizes, increase market purchases Other purposes of livestock; food and status IBLI may increase value of livestock used for these purposes 4 / 21
  5. 5. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Introduction Theoretical Framework E(Uh(L)) = λ(bh(L) − mh(L)) − ph(L) (1) E(Uh(L)|Insurance) = λ(bh(L) − mh(L) − τbh(L)) + τbh(L) − ICh(L) − ph(L)(2) Where: bh(L) is increasing and concave in L mh(L) is increasing and convex in L ph(L) is increasing and linear in L λϵ[0, 1] is the expected proportion of the household’s herd that survives τbh(L)), τ < 1 is insurance payout ICh(L) is cost of insurance policy 5 / 21
  6. 6. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Introduction Theoretical Motivation From the First Order Conditions and the Implicit Function Theorem we find that: Herd size is increasing in expected livestock survival By reducing risk associated with livestock death, IBLI increases optimal herd size Testable Predictions: IBLI increases net livestock purchases This effect is less pronounced for households who expect more of their livestock to survive 6 / 21
  7. 7. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Estimation Strategy & Data Baseline Estimating Equation MarketParticipationit = α + βLivestockInsuranceit + σXit+ + θRegionNDVIt + ϕYeart + ωHouseholdi + ϵi (3) Extensions: How does this vary with household migratory patterns and household expectations about rangeland conditions? Robustness: Instrument for IBLI coverage Price controls, alternative econometric specifications Fewer Fixed Effects 7 / 21
  8. 8. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Estimation Strategy & Data Data Sources & Sample Description This paper uses panel data collected in Marsabit over a period of 5 years annually begining October 2009 Of the 47 sublocations 16 were selected for the study, representing various livestock production systems and agro-ecologies. 8 sublocations HSNP 924 households (minimum 30 and maximum 100) 2.9 percent attrition over the panel period 8 / 21
  9. 9. Summary Statistics: Key Dependent and Independent Variables Full IBLI Non-IBLI Sample Policy Policy Holders Holders Variable Mean Mean Mean p-value of (Std. Dev.) (Std. Dev.) (Std. Dev.) Difference Any Market Activity 0.564 0.618 0.554 0.008*** (0.496) (0.497) (0.486) Net Buyer 0.102 0.147 0.093 0.000*** (0.302) (0.354) (0.291) Net Seller 0.463 0.471 0.461 0.681 (0.499) (0.500) (0.499) IBLI Policy Holder 0.159 (0.366) Household Herd Size 15.042 14.984 15.067 0.936 (21.326) (17.674) (21.970) Household Expectations about 2.921 2.867 2.929 0.218 Rangeland Conditions ( 1.053) (1.052) (1.052) Household Migratory Patterns 1.617 1.645 1.640 0.861 (1.469) (0.510) (0.518) Fully Settled Household 0.377 1 0.371 0.379 0.735 (0.485) (0.483) (0.485) Observations 3269 519 2749 ........ ..... ................. ................. ................. .... .... . .... ........ .
  10. 10. Summary Statistics: Controls Full IBLI Non-IBLI Sample Policy Policy Holders Holders Variable Mean Mean Mean p-value of (Std. Dev.) (Std. Dev.) (Std. Dev.) Difference Household Head Marital Status 2.506 2.434 2.520 0.111 ( 1.121) (1.073) (1.129) Household Head Gender 0.381 0.384 0.380 0.869 ( 0.486) (0.487) (0.486) Household Head Age 48.709 47.517 49.139 0.040** (17.148) (15.788) (16.596) Household Size 6.141 6.400 6.091 0.006*** (2.352) (2.352) (2.346) Household Financial Literacy 0.516 0.488 0.521 0.057* (0.363) (0.359) (0.364) NDVI -2.730 -5.513 -2.198 0.000*** (7.703) (7.521) (8.029) Log(Distance to Nearest 4.293 4.256 4.302 0.384 Livestock Market) ( 1.114) (0.906) (1.148) Discount Coupon 0.244 0.564 0.185 0.000*** (0.430) (0.496) (0.388) Non-Livestock Income Sources 0.675 0.676 0.676 0.992 (0.747) (0.774) (0.742) Observations 3269 519 2749 ........ ..... ................. ................. ................. .... .... . .... ........ .
  11. 11. Livestock Market Activity and Livestock Insurance (1) (2) (3) (4) (5) Dependent Variable Any Market Activity Net Seller Net Buyer IBLI Policy Holder 0.064*** 0.056** 0.060** 0.041 0.019 (0.024) (0.025) (0.029) (0.031) (0.020) Household & Year No No Yes Yes Yes Fixed Effects Household and No Yes Yes Yes Yes Environment Controls Observations 3,269 3,269 3,269 3,269 3,269 R-squared 0.003 0.004 0.010 0.009 0.016 Number of households 959 959 959 959 959 Notes: Standard errors clustered by household are in parentheses. * significant at 10%; ** significant at 5%; *** significant at 1% ........ ..... ................. ................. ................. .... .... . .... ........ .
  12. 12. Livestock Insurance, and Livestock Market Activity: IV Estimation (1) (2) (3) (4) Dependent First Stage Any Market Activity Net Seller Net Buyer Variable IBLI Policy 0.110 -0.018 0.128* Holder (0.112) (0.115) (0.070) IBLI Discount 0.213*** Coupon (0.017) F-Statistic 26.06*** Observations 3,269 3,269 3,269 3,269 Number of hhid 959 959 959 959 Notes: Standard errors are in parentheses. Controls for household characteristics, rangeland conditions, and year and household fixed effects are included in all regressions. * significant at 10%; ** significant at 5%; *** significant at 1% ........ ..... ................. ................. ................. .... .... . .... ........ .
  13. 13. Livestock Insurance, Household Status and Livestock Market Activity: IV Estimation (1) (2) (3) (4) (5) (6) Fully Settled Partially Settled, Households Nomadic Households Any Market Net Net Any Market Net Net Activity Seller Buyer Activity Seller Buyer IBLI Policy Holder -0.144 -0.139 -0.005 0.041 -0.067 0.108 (0.269) (0.315) (0.228) (0.133) (0.131) (0.072) Observations 1,234 1,234 1,234 2,035 2,035 2,035 Number of households 674 674 674 764 764 764 Notes: Standard errors are in parentheses. Controls for household characteristics, rangeland conditions, and year and household fixed effects are included in all regressions. * significant at 10%; ** significant at 5%; *** significant at 1% ........ ..... ................. ................. ................. .... .... . .... ........ .
  14. 14. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Results Livestock Insurance and Survival Expectation: IV Estimation (1) (2) (3) (4) First Stage Any Market Net Net Activity Seller Buyer IBLI Policy Holder 0.132 -0.177 0.309** (0.212) (0.219) (0.133) Household Expectations about 0.004 0.013 -0.008 Rangeland Conditions (0.015) (0.015) (0.009) IBLI Policy Holder* Household -0.009 0.059 -0.068* Expectations Rangeland Conditions (0.066) (0.068) (0.041) IBLI Discount Coupon 0.207*** (0.045) IBLI Discount Coupon* Household 0.330*** Expectations about Rangeland Conditions (0.047) F-Statistic, Discount Coupon 24.43*** F-Statistic, Interaction 26.92*** Observations 3,268 3,268 3,268 3,268 Number of households 959 959 959 959 Notes: Standard errors are in parentheses. Controls for household characteristics, rangeland conditions, and year and household fixed effects are included in all regressions. * significant at 10%; ** significant at 5%; *** significant at 1% 14 / 21
  15. 15. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Conclusion Conclusion Robust evidence that IBLI significantly increases likelihood of households accumulating livestock Relationship strengthens with households that have negative expectations No evidence that IBLI is a substitute for larger herd sizes Implications: By protecting productive assets, IBLI increases accumulation of such assets IBLI not only protects against poverty traps, changes incentives for investment in production 15 / 21
  16. 16. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Back-Up Slide Full Set of Controls Any Market Activity Net Seller Net Buyer IBLI Policy Holder 0.060** 0.041 0.019 (0.029) (0.031) (0.020) Log(Distance to Nearest 0.009 0.026 -0.017 Livestock Market) (0.045) (0.065) (0.060) Household Herd Size -0.002** -0.001** -0.000 (0.001) (0.001) (0.000) Household Expectations about 0.003 0.022** -0.019*** Rangeland Conditions (0.010) (0.010) (0.006) Household Migratory Patterns 0.003 0.003 -0.000 (0.003) (0.003) (0.001) Household Head Marital Status -0.012 0.016 -0.028** (0.035) (0.037) (0.014) Household Head Gender 0.058 0.088 -0.030 (0.075) (0.080) (0.043) Household Head Age 0.001 0.002 -0.001 (0.002) (0.002) (0.001) Household Size -0.003 0.006 -0.009 (0.012) (0.013) (0.008) Household Financial Literacy -0.002 0.049 -0.050*** (0.032) (0.033) (0.020) NDVI -0.008 -0.002 -0.006 (0.019) (0.019) (0.005) Observations 3,269 3,269 3,269 R-squared 0.010 0.009 0.016 Number of hhid 959 959 959 16 / 21
  17. 17. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Back-Up Slide Livestock Insurance, and Livestock Market Activity: Multinomial Logit (1) (2) Dependent Variable Value Net Seller Net Buyer VARIABLES IBLI Policy Holder 0.161 0.455*** (0.111) (0.164) Observations 3,269 3,269 Notes: Robust standard errors are in parentheses. Controls for household characteristics, rangeland conditions, and year fixed effects are included in all regressions. Excluded dependent variable value is neither net seller nor net buyer. * significant at 10%; ** significant at 5%; *** significant at 1% 17 / 21
  18. 18. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Back-Up Slide Livestock Purchase & Changes in Herd Size Dependent Variable Change in Herd Size VARIABLES Net Buyer 4.266*** (1.287) Observations 3,145 Number of Households 920 R-squared 0.042 Notes: Standard errors clustered by household are in parentheses. Controls for household characteristics, livestock insurance coverage, rangeland conditions, and year and household fixed effects are included in all regressions. * significant at 10%; ** significant at 5%; *** significant at 1% 18 / 21
  19. 19. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Back-Up Slide Livestock Insurance, and Livestock Market Activity: Price Controls (1) (2) (3) Dependent Variable Any Market Activity Net Seller Net Buyer IBLI Policy Holder 0.066** 0.050 0.016 (0.030) (0.031) (0.020) Household Expectations about 0.004 0.023** -0.019*** Rangeland Conditions (0.010) (0.010) (0.006) Observations 3,268 3,268 3,268 R-squared 0.011 0.012 0.019 Number of households 959 959 959 Notes: Standard errors clustered by household are in parentheses. Controls for household characteristics, rangeland conditions, camel, cattle, and shoat prices, and year and household fixed effects are included in all regressions. * significant at 10%; ** significant at 5%; *** significant at 1% 19 / 21
  20. 20. ..... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . .... . .... . ..... . .... . ..... . .... . .... . Pastoralist Market Engagement in The Presence of Index Based Livestock Insurance: Evidence from Northern Back-Up Slide Household Status and Income Sources Dependent Variable Non-Livestock Related Income Sources VARIABLES Fully Settled 0.510*** (0.032) Observations 3,090 R-squared 0.235 Notes: Standard errors clustered by household are in parentheses. Controls for household characteristics, rangeland conditions, and year fixed effects are included in this regression regressions. * significant at 10%; ** significant at 5%; *** significant at 1% 20 / 21

Presented by Eddy Chebelyon at the IBLI academic workshop, Nairobi, 10 to 11 June 2015

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